Market update

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA

As we head into the fall, many clients are wondering what the results of the upcoming US election may bring to portfolios. ScotiaMcLeod research has just published a terrific piece that outlines some of the short and long term effects that may come depending on how the US vote is decided:

While rather technical, the expectations gap chart on page 14 illustrates what retail clients have as return expectations around the world vs. what investment advisors are suggesting as long term returns.

Investors Globally expect returns (8-11%) which are twice as much as professionals suggest is realistic (4-6%). In Canada, investors expect 9.3% which is 94% higher than the advisors' average return projection.

For a longer term perspective, please take a look at our Investing Principles presentation. Long term clients will have seen many of the topics covered over the years, but all the data has been updated and a refresher on our basic investment principles is always good to have:

If you have any questions about the current markets, your specific investment holdings or the rate of return needed to achieve your personal investment objectives, please contact us for a portfolio review and financial plan update.

New account reporting coming in 2017

Starting in 2017, ScotiaMcLeod and other investment dealers will be issuing new performance and fee statements. As always, your returns will be shown net of any fees paid. There will be additional information regarding long term rates of return, commissions paid, trailer fees that were received or other charges. Your September statement included this preamble to the reports that will be coming early next year.

The Spiess McGlade team has been pleased to provide long term performance reporting and fee summaries to our clients for many years. If you would like a personalized report in the interim, please contact us.

Scotia Wealth Management — Bloomberg Pursuits Magazine

Our new Scotia Wealth Management brand and value proposition was recently featured in Bloomberg Pursuits magazine. The article outlines how our Enriched Thinking™ using our team of specialists benefits you by taking a look at your big picture:

The article features comments from our heads of Canadian Wealth Management about Scotia’s long term strategy to help enrich our clients’ lives.

Part of this Enriched Thinking™ involves being able to draw on the deep resources of all parts of the larger Scotia organization. We have a team of specialists available to assist our clients in many areas of expertise. Here is the Spiess McGlade team of specialists brochure:

What is the average Mutual Fund or ETF fee in Canada?

I asked our summer student, Alexander Keeler, to do some research for us. We have data on 17,000 funds available in Canada. It turns out the average mutual fund fee in Canada is 1.05%. Well, that is the weighted average of the 4,500 "F" class mutual funds available. There are also 12,000 mutual funds that have a trailer fee built into them so their fees are higher, and the weighted average of those MERs is 1.88%.

ETF & Mutual Fund MERs

No advisor compensation
Traditional ETF or F Class

Built in compensation
.A ETF or Trailer Fee

ETFs

Number of Funds

466

100

Average of MER (%)

0.65%

1.53%

Average of Asset Weighted MER (%)

0.38%

1.28%

Mutual Funds

Number of Funds

4,507

12,102

Average of MER (%)

1.21%

2.02%

Average of Asset Weighted MER (%)

1.05%

1.88%

Total funds of this type

4,973

12,202

What about all the articles that say the average mutual fund fee is well north of 2% and Exchange Traded Funds (ETFs) are all less expensive than mutual funds? They are correct that many mutual funds used to be expensive, and there are some very low cost ETFs. But often it is a comparison of apples and oranges. The average ETF fee which does not have a trailer fee when weighted by assets is .38% (still considerably lower than the 1.05% for comparable mutual funds). But when comparing ETFs which pay trailer fees, the weighted average ETF fee of 1.28% is much higher than most people would assume.

Similar analysis was done by Investor Economics which came up with 1.00% average for F class, and 2.06% for funds that have a trailer fee:

And Morningstar / Scotaiwealth research shows a total average cost of ETF ownership at .87%, not far off the average F-Class fund:

So as we have said for many years, Mutual Funds and ETFs are two very similar investment structures that allow investors to get a diversified pool of investments in one easy package. Some are expensive, some are actively managed, some are bargains, and ultimately what matters is the performance of the fund after fees. We are pleased to help identify those good broadly available funds on our investment recommended list:

What investment fees are tax deductible?

One of the advantages cited for moving from traditional "A" advisor class investment funds which pay a trailer to "F" class funds and having an investment management fee billed separately is that the fee is then "tax deductible". It actually turns out that the fee on "A" class funds is also tax deductible, in that there is a lower capital gain on the fund long term. There is a difference though in the timing and the tax treatment, and many clients prefer having an ongoing deduction, and a higher eventual capital gain. Here are a few articles that help explain the math:

If you would like to see an investment proposal in our fee based Partnership Plus or Managed Portfolio Programs, we would be pleased to outline the differences in a real life example for you. Contact us for more information.

Note: The above information is intended as a general source of information and should not be considered as personal tax advice. The Spiess McGlade Team are not tax advisors and we recommend that you consult your professional tax advisor before taking any action based on the above information.

Team News

Two of our long term investment team associates, Claudia Ochoa and Christina Calvert, have taken on new roles at ScotiaMcLeod's National Branch. Claudia and Christina will continue to partner with us to ensure that our group retirement clients continue to receive seemless service. We would like to thank them for their many years of service helping our clients as Senior Associates and wish them well in their new roles as Investment Advisors. Please see our team's full biographical information:

Canada Savings Bonds 2016

With rates being so low (0.5% for regular bonds and only 1% in the 3rd year for premium bonds), we are not seeing much interest (pun intended) in CSBs this year. In fact, there is discussion in Ottawa about scrapping the CSB program completely. Overall CSBs held by Canadians have dropped from 55 billion to 6 billion.

Fivethirtyeight.com is a website named for the number of electors in the US electoral college. Editor Nate Silver uses a meta-analysis of many polls and layers in historical accuracy of prior polls and demographic information to help make best estimates of various political outcomes. The articles are generally very interesting to read (and by the way, the sports analysis is very good, too).

® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.